Most investors are (or at least should be) familiar with the concept of “Home Country Bias” — the natural tendency to be more familiar and comfortable with public companies in your home country.

Investors everywhere consistently display this trait, which is in direct conflict with the basic principles of international diversification.

A 2014 report by Vanguard found that “Equities not domiciled in the United States accounted for 51 percent of the global equity market as of Dec. 31, 2013.” U.S. equities accounted for the rest. Despite the size of non-U.S. markets, U.S. mutual funds engaged in classic home country bias, holding “only 27 percent of their total equity allocation in non-U.S.-domiciled assets.”

In other words, investors were about 50 percent underweight when it came to equities outside their country. This bias increases the risk and volatility of portfolios, and is a drag on performance.

In the U.S., the impact is partially muted, given the dominant size of U.S. equity capitalization (49 percent) relative to the rest of the world. Nonetheless, the Vanguard study shows that U.S. investors’s holdings of U.S. stocks significantly exceeded the country’s share of the global market.

Now consider the typical domestic portfolio in Canada, which accounts for 4 percent of global equity capitalization. According to a recent survey from the International Monetary Fund, Canadian investors allocate a mere 40 percent of their total equity investments outside Canada. Their local allocation to Canada is about 10 times what it should be. The numbers are similar for the U.K. The considerably smaller size of these markets means that these home country biases create a significant over-exposure to home country companies. Radically reduced diversification is the net result.

The local economy affects not only an investor’s portfolio, but their employment and incomes. Hence, there is significant risk tied to the performance of the local economy. The obvious solution is a more global allocation that is closer in relative proportion to global market capitalizations.

And there is another bias that comes into play. For those of us in the U.S., there is an apparent regional and state preference. The part of the nation where you reside will influence your portfolio holdings in subtle but significant ways.

That is the finding of OpenFolio, a site that allows investors to see how their portfolios compare to those of other people on the site.

Take a look at the map below. It shows how the regional bias manifests itself relative to your area in the U.S. If we break the nation into four areas — North, South, East and West — we can identify a variation of home country bias, aligned to the dominant industry within each region.

If you live on the West Coast, near the technology hubs of Silicon Valley, you are very likely to be overweighted in technology by 9.5 percent or so. Live in the Northeast, and you are overexposed to finance by 9 percent. Investors in the industrial Midwest are likely to have 11.8 percent more industrial companies in their portfolio than the rest of the country. The greatest overexposure is in the South, where energy holdings are 13.7 percent above the average.

Some of this overweight might be due to employee stock option plans. After all, Google’s founders, and most of its employees, live in or around Mountain View, California. Their portfolios are likely to be filled with Google shares and/or options. The same is true for JPMorgan and Goldman Sachs in New York and Boston, Exxon Mobil in Texas, and 3M in Minnesota. Without access to the full data, there’s no way of telling.

Still, some of this variation could be due to a regional version of home country bias. The odds are that even nonemployees know people who work in the dominant industries in their areas. Is it possible to live in San Francisco and not know tech workers? Can anyone in New York not know people who work in finance?

What matters most to investors is at least having some awareness of the factors that may be biasing their behavior. That insight gives them a fighting chance to prevent irrelevant considerations from shaping their portfolios

James Glassman, author ‘Dow 36,000’: “What is dangerous is for Americans not to be in the market. We’re going to reach a point where stocks are correctly priced … not a bubble. … market is undervalued.” (October 1999)

Larry Kudlow, CNBC host “This correction will run its course until the middle of the year. … not even Greenspan can stop the Internet economy.” (February 2000)

Cramer: “SUNW probably has the best near-term outlook of any company I know.” (September 2000)

Lehman’s Jeffrey Applegate: “The bulk of the correction is behind us, so now is the time to be offensive, not defensive.” (December 2000)

Alan Greenspan: “The 3- to 5-year earnings projections of more than a thousand analysts … have generally held firm. Such expectations, should they persist, bode well for continued capital deepening and sustained growth.” (December 2000)

Suze Orman: “The QQQ, they’re a buy. They may go down, but if you dollar-cost average, where you put money every single month into them … in the long run, it’s the way to play the Nasdaq.” (January 2001)

CNBC reporter Maria Bartiromo: “The individual out there is actually not throwing money at things that they do not understand, and is actually using the news and using the information out there to make smart decisions.” (March 2001)

Goldman Sachs’s Abby Joseph Cohen: “The time to be nervous was a year ago. The S&P then was overvalued, it’s now undervalued.” (April 2001)

Lou Dobbs, CNN: “Let me make it very clear. I’m a bull, on the market, on the economy. And let me repeat, I am a bull.” (August 2001)

Kudlow: “The shock therapy of a decisive war will elevate the stock market by a couple thousand points,” with Dow 35,000 by 2010. (June 2002)

Lots of hype, very little facts, just about all of it wrong.

~~~

1929 Crash and 1930’s Depression — seven early happy-talking gurus

Go back to the Crash of ’29 and the Great Depression. Same pattern: Optimism at the top, despair at the lows.

Listen to what investors trusted around the 1929 Crash:

Irving Fisher, Yale Ph.D. in economics: “Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels … I expect to see the stock market a good deal higher within a few months.” (Oct. 17, 1929, just days before the Crash)

Goodbody market-letter in New York Times: “We feel that fundamentally Wall Street is sound, and that for people who can afford to pay for them outright, good stocks are cheap at these prices.” (Oct. 25, 1929)

BusinessWeek: “The Wall Street crash doesn’t mean that there will be any general or serious business depression … For six years American business has been diverting a substantial part of its attention, its energies and its resources on the speculative game… Now that irrelevant, alien and hazardous adventure is over. Business has come home again, back to its job, providentially unscathed, sound in wind and limb, financially stronger than ever before.” (Nov. 2, 1929)

Harvard Economic Society: “A serious depression seems improbable … recovery of business next spring, with further improvement in the fall.” (Nov. 10, 1929)

Treasury Secretary Andrew W. Mellon: “I see nothing in the present situation that is either menacing or warrants pessimism … I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress.” (Dec. 31, 1929)

Wall Street Journal: As the Dow fell from 298 to Dow 41:“Chase National Bank says the current conditions of very easy credit and poor business have always been a buying opportunity in the past. Absolutely confident that any list of good stocks will have good gains by end of 1931 and probably show a profit by end of 1930.” (June 1930)

Existing Home Sales and Prices continue to fall, according to the latest release from the National Association of Realtors. Existing Homes Sales fell in 38 states, led by steep declines in Arizona, Florida and California, as once-booming housing market showed further signs of a steep
slowdown.

The WSJ noted that "the declines were the largest in once-booming areas of
the country. Sales fell by 36% in Arizona; 34.2% in Florida and 28.6%
in California. In all, nine states had sales declines in the summer of
20% or more compared to the third quarter of 2005."

The NAR also noted weakness in sales in metropolitan areas. According to a separate
survey by the Realtors group in 148 metropolitan areas, price surveys
showed that the median — or midpoint — price for an existing home
sold in the third quarter dipped to $224,900, down 1.2% from a year
earlier.

In my experience, the reported median sale drop of 1.2% simply does not accurately reflect reality; I suspect it is being biased upwards by "trophy" property prices prices and other adjustments.

Warning: Anecdotal story to follow

Last summer (’05), we looked at an out-of-our-price-range 7 figure plus property. "Its for comparison purposes only" said the Real Estate Agent.

Of course, Mrs. Big Picture fell in love with it. Sunken living room, gorgeous kithcen, fireplace in the Master BR, huge piece of property, just a 5 minute walk to the L.I. Sound. We heard thru the grapevine that a deal was had, fairly close to the asking price. Comparables on the same street had gone in the nines and better.

But the deal fell apart, and the house went back on the market. We watched it over the next 14 months on line at MLSLI, as the sellers chased the market down: $50k off, then another $40k then another $60, and then another and another. The price eventually fell 20% from original asking price.

I asked the agent what the repsonse would be if I offered yet another $50k less than the re-reduced price. She said: "They would jump on it." We would then have to figure out how to sell my more modest home between Thanksgiving and Xmas. (yeah, good luck with that).

In speaking with other agents and watching the online listing of prices drop, its apparent that this was not a unique situation. Prices continue to drop, and a whole lot more than the 1.2% the NAR is revealing. Prices are falling rapidly due to what can be euphemistically described as "motivated" sellers. Maybe this helps explain some of the reason why: Foreclosures spiked up 42% in October (year over year).

Perhaps the usually hallucinogenic David Lereah, the Realtors’ chief economist, got it is right this time: "With the market
in full transition, buyers now have choices [read: more inventory] and sellers are more
willing to negotiate [read: desperate]. Under these circumstances, it’s no
surprise that overall home prices are slightly below a year ago."

Meb Faber’s Idea Farm reminds us that the Credit Suisse Global Investment Returns Yearbook 2018 should be on your regular reading list. It is chock full of wonderful charts and tables and notes.

Two images from it struck me as so very insightful and revealing, they were worth sharing; perhaps because we have been discussing the issue of overseas exposure so much the past few years.

The first chart (Relative sizes of world stock markets, end-1899 versus end-2017, above) shows the relative sizes of world stock markets, from 1900-2017. As you can see, the US was a mere 15% of the global pie at the start of last century; today it is over half (by capitalization). This should cause you to wonder: Are those prior levels of high U.S. returns will be sustainable for the next century.

Second, look at the ebbs and flows in the chart below, (Evolution of equity markets over time from end-1899 to end-2017, below). The USA has seen its global share rise and fall several times. Also noteworthy: how Japan ballooned up during 1990s & 90s; at its peak, it became almost half of the global market cap.

To make sure you are not over-exposed to the place where you live, review all of your own portfolios (investment, retirement, etc.) X-Ray them, look to see if your holdings significantly overweight US stocks (or where ever your bias lives), consider more exposure to Emerging Markets and Developed Ex-US.

Ben Carlson is a Chartered Financial Analyst and Director of Institutional Asset Management at Ritholtz Wealth Management. He has spent his career helping institutions invest and manage their portfolios.

~~~

Thinking and acting long-term for the long-term is one of the few edges remaining in the markets. Bring up this idea and there will almost always be someone waiting to take the other side with the ‘what about Japan?’ argument.

Japan’s two-and-half decade economic and market struggles make for some important lessons but most investors seem to have the wrong takeaways.

One of my favorite market history books is Devil Take the Hindmostby Edward Chancellor. The book provides one of the best historical accounts of financial speculation that I’ve read. Some of my favorite anecdotes and stats came from the section on the Japan real estate and stock market bubble from the 1980s:

From 1956 to 1986 land prices increased 5000% even though consumer prices only doubled in that time.

In the 1980s share prices increased 3x faster than corporate profits for Japanese corporations.

By 1990 the total Japanese property market was valued at over 2,000 trillion yen or roughly 4x the real estate value of the entire United States.

The grounds on the Imperial Palace were estimated to be worth more than the entire real estate value of California or Canada at the market peak.

There were over 20 golf clubs that cost more than $1 million to join.

In 1989 the P/E ratio on the Nikkei was 60x trailing 12 month earnings.

Over the next decade the Japanese stock market lost roughly 80% of its value (which is still far below that peak today):

Meb Faber also has a great chart on how truly massive the Japanese bubble was in terms of its CAPE valuation relative the U.S. tech bubble:

As crazy as things got in the tech bubble, those peak valuations were still a little less than half the peak valuations in Japan.

This was a bubble of massive scale in both stocks and real estate.

The returns also tell the story when you break them down by different periods from 1970 through 2015:

A $100,000 investment in Japanese large cap stocks in 1970 would have turned into $5.7 million by 1989. In small cap Japanese stocks that $100,000 would have grown to $18.3 million! Yet from 1990-2015 the same $100,000 would have turned into $90,400 and $149,000, respectively.

You can also see the affect Japanese stocks had on the foreign developed stock market performance by looking at the difference in returns between the EAFE and EAFE ex-Japan. Avoid Japan in the 70s and 80s and you would have been kicking yourself. Include them since then and you would be kicking yourself.

Japan has surely been a cautionary tale since since 1990 but you have to take into account how truly insane the markets went to get to that point.

Here are some of the wrong lessons investors have taken away from Japan’s bubble deflating:

Buy and hold doesn’t work. The truth is buy and hold doesn’t always work over every single period. There almost have to be periods where buy and hold doesn’t work, otherwise everyone would do it. If something worked all the time, eventually it wouldn’t work because too many people would join in. This extreme example shows that buy and hold worked mighty well in one time frame but terribly in another. Still, in the overall period it looks like it still “worked.” It really matters how you define your time frame. Both sides could claim victory on this one.

The U.S. is the next Japan. We have quite a ways to go to every reach the speculative excesses that had to be worked off in Japan. Not to mention there are enormous differences in demographics, the diversity of the U.S. economy and the immigration policy differences between the two countries.

And the right lessons:

Never underestimate how far people can take the markets to the extremes. This works in both directions. The pendulum swings back and forth but always seems to go further than most would assume is possible. Japan offers what I would consider the largest bubble in history, but people have a habit of forgetting about these things and assuming they can’t happen again.

Valuations matter. Valuations don’t work as a timing tool. If you tried to use them in Japan you probably would have gotten out of the market a decade before the peak. It’s easy to say this in hindsight, but there were few scenarios where the late-1980s real estate and stock market valuations could have been validated going forward.

Certainty rarely helps make good decisions. People were certain that Japan was going to zoom by the U.S. and overtake it as the largest economy in the world. And who could blame them? Very few people predicted the other side of that one.

Avoid home country bias. If you live in Japan and had all of your investments in Japanese stocks you’ve not only lived through a few decades of poor investment returns but also a slow growing economy.

Avoid investing all of your money in a single asset class. Japanese government bonds returned over 6.1% per year from 1990-2015, far outpacing the stock market in that time.

Diversification, as always, is the key to avoiding a blow-up. The entire point of diversification is to avoid having your entire portfolio in a Japan situation. The global stock market has done just fine since 1990 even when you include Japan in the results.

Normally, I am not a fan of blindly providing investment advice in the mass media beyond informing people what is really going on. Readers come from all over the world, have different risk tolerances, live under differing tax regimes, have different incomes and financial goals. No one speaking in public knows what their readers need to retire. Anything any pundit says publicly cannot possibly apply to everyone.

Thus, it is tricky to provide advice that wasn’t self-serving or even irresponsible.

The way I managed around this was to identify several investing themes that were: a) relatively inexpensive; b) under-invested by American readers; c) could see price appreciation as well as be a long term asset allocation hold; d) are all represented in our clients’ asset allocation portfolios.

My first suggestion a year ago was Buy Emerging Markets. They were both cheap, and widely underrepresented in American portfolios. The next quarter were European equities, also cheaper than U.S. stocks and wildly out of favor. And in the process of the two of these, I managed to sneak in small lesson about home country bias.

And if you want or need help with your own portfolios, please reach put to us — go to our website, or call us at 212-455-9122 (ask for Erika or Kris), or send an email to Info-at-RitholtzWealth-dot-com.

Finding the Active in Low-Cost Passive Investing
There are any number of ways to construct an index. Some lead to more trading than others, increasing expenses.Bloomberg, July 18, 2017

I have long defended the idea that a substantial portion of your investable assets should be in a portfolio of low-cost, global, passive indexes. My primary beef with much of the active universe (especially hedge funds and private equity, and the pensions and endowments that love them) is the one-two punch of high expenses and underperformance. And if you are going to pick stocks as an active investor, then be active — don’t be a closet indexer. Otherwise, you might as well buy a low-cost index fund and be done with it.

However, passive, low-cost, index-based investing isn’t truly, objectively passive. It involves some decision-making, mostly choices that were made in the past by others. Modern passive investors merely default to these earlier decisions. That doesn’t make the historical legacy any less active, but it helps to understand the reasons behind these past choices: they were made for purposes of convenience, cost and efficiency.

First, consider the passive equity indexes. These were created using market capitalization weighting long ago; they could just have easily been equal weighted. 2 Cap weighting was the choice made by Vanguard founder Jack Bogle 41 years ago when he introduced the initial Vanguard 500 Index Fund, which was designed to track the performance of the Standard & Poor’s 500 Index. His thinking: it was the cheapest way to construct and manage an index.

He had other choices. He could have selected equal weighting. However, price changes of each individual security would have quickly moved the index away from equal weight. Maintaining equal weighting of the 500 stocks in the S&P 500 would have required regular rebalancing — perhaps as often as quarterly or even monthly — driving up trading costs. It is easy to see why Bogle went with cap weighting.

That also leads to the S&P 500 itself: Why rely on the assessment of S&P to come up with 500 names? Why not simply take the 500 biggest publicly traded companies and save money on licensing the index from S&P? The S&P index methodology explains how it selects companies, mostly relying on market value. But other factors enter into the calculation. First, S&P distributes the stocks across 11 industrial sectors. But it also looks at issues of liquidity and public float, as well as home domicile.

Had Bogle gone with pure market-cap weighting, it would have run the risk of over-exposure to a specific sector that became hot quickly. Just imagine what a pure S&P 500 cap-weighted index would have looked like in 1999 near the peak of the dot-com bubble.

The new wave of fundamental indexes, also known as smart beta, is another alternative to cap-weighted indexes. A stock index could easily have been weighted by revenue — that is how the Fortune 500 is constructed. There are many choices available to anyone who wants to create an index from scratch. Dividend yield, profit growth, price-to-earnings — but the same criticism is that these other methods of weighing an index will result in more rebalancing and trading, and therefore higher expenses. The bottom line is that cap-weighting seems to always win the low-cost argument.

What I find to be the most intriguing criticism of passive indexing comes from looking at an asset allocation portfolio as a whole: Typical portfolios don’t accurately reflect the weight of investable asset classes around the world. I am not referring to home country bias, but rather the relative weightings of stocks, bonds commodities and real estate in a portfolio.

The global real estate market — land and improvements — is more than $200 trillion, public debt is $95 trillion, private loans (securitized or not) is $99 trillion, equity is $67 trillion, cash and equivalents is $41 trillion. 3 Most portfolios obviously look nothing like this. The classic 60/40 (or 70/30) blend of stocks and bonds doesn’t reflect real-world asset sizes. However, it is a reflection of Harry Markowitz‘s modern portfolio theory, which considers risk relative to expected returns. Any indexer must also plead guilty on that count.

Hence, passive does reflect a number of choices, made over time. This is why some of the pioneers of indexing — Charlie Ellis, former chairman of the Yale University endowment, comes to mind — prefer the phrase “low-cost indexing” rather than passive investing. You should, too.

_________

1. I don’t like to go ad hominem, but how historically unaware does one have to be about the evils of communism before publishing something like that?

• America Is Great. Home Country Bias Ain’t. (GMO) see also In the Stock Market, International Is Actually First (New York Times)
• 10 Insights from the Berkshire Hathaway Weekend (Behavioral Value Investor)
• Waiting for the Market to Crash is a Terrible Strategy (SVRN) see also Swedroe: Forecasters Not Held Accountable (ETF.com)
• Proof! CEOs hurt companies by golfing too much (CNBC)
• A Tale of Two Realities: Watching Fox News During Trump’s Tumultuous Week (The Ringer) see also How Roger Ailes Polarized TV News (FiveThirtyEight)

We are down to the Sweet 16 in the NCAA’s men’s college basketball tournament, otherwise known as March Madness, which depending upon your perspective is either the most exciting month in sports or the American collegiate plantation system writ large.

As is my wont, I seek out lessons in what I see, hunting for parallels in sports, politics, et al. to the world of investing and trading. In college basketball, the similarities are overwhelming: the parade of upsets has already given rise to many lessons that might go overlooked, but for your scribe’s eagle-eyed observations.

Here are a few thoughts:

1. Predicting the future is impossible: The defeat of several favorites, most notably Kansas and Maryland, remind us that predicting the future is a fool’s errand. We simply never know what will happen next. It is as true for sports as it is for politics, investing or economics.

Chaos theory teaches us that these systems are complex, dynamic, non-linear and sensitive to small changes. The slightest unanticipated flap of a butterfly wing lays waste to the most thoroughly researched forecasts.

Only after you have accepted that you really don’t know what is coming next, can you begin to make more intelligent investing decisions.

2. Home country bias: Investors tend to have higher equity exposure to the country where they live. The home country bias is true regardless of nationality. Familiarity with local companies and brands leads to a disproportionate weighting far beyond global capitalization.

We were reminded of this last week by Neil Irwin, who showed that the “familiarity heuristic,” or a tendency to overweight the value of what’s familiar to us, applies even to bracketology, or the process of predicting how teams will fare in the basketball tournament.

3. Expert forecasts are about as good as those of nonexperts: The teams picked to go deep into the tournament by the experts at ESPN,Sports Illustrated, and fivethirtyeight among others were all knocked out early. As we have noted before, if the pros stink at this, why do you imagine you are any better?

As William Sherden wrote in “The Fortune Sellers,” there is a “Big Business in Buying and Selling Predictions” — even if they are for the most part wrong. My contribution to the oeuvre was to point out thatforecasting is marketing.

We see the same thing when it comes to investing. Indeed, the troika of Wall Street, financial media and advertising devote billion of dollars a year trying to get you to, HEY! LOOK OVER HERE!, when you should really be just paying attention to the basics.

5. More information doesn’t help: There is an overwhelming, rich library of data, analysis and commentary on any team or player. Fans who try to use this to their advantage when designing their brackets will learn an inexpensive lesson.

Traders who try to do the same learn an expensive lesson. Why is this? First, the same facts are available to everyone. Hence, there is no competitive advantage to digesting more of them.

As it turns out, only a modest amount of data is needed to make an informed decision. Excess information only serves to generate an unfounded sense of self-confidence and a bias toward overtrading. In other words, too much information leads to underperformance.

6. Never underestimate the impact of dumb luck: There is an overlooked component to much of what we perceive as success, and that is the role of serendipity. As Charlie Ellis observed when he was overseeing Yale University’s $15 billion endowment fund:

Watch a pro football game, and it’s obvious the guys on the field are far faster, stronger and more willing to bear and inflict pain than you are. Surely you would say, ‘I don’t want to play against those guys!’

Well, 90% of stock market volume is done by institutions, and half of that is done by the world’s 50 largest investment firms, deeply committed, vastly well prepared – the smartest sons of bitches in the world working their tails off all day long. You know what? I don’t want to play against those guys either.

Of course, you have to be smart, work hard, avoid mistakes and have a deep understanding of your chosen field. But, as Michael Mauboussin told us, when you get so many talented and hard working people in the field, as you have in finance and college and professional sports, luck plays a surprisingly large role. When everyone is competing at the highest level, a favorable bounce can make all the difference.

Much of what we perceive as success often has a component of randomness. Good luck working that into your brackets — or portfolios.

No one has the least idea what is going to work….The minute people start acting like they know everything, we’re all in trouble. Nobody thought Taken would do $100m. Nobody thought Liam Neeson would make it as an action star at this stage in his career. I heard a story that Slumdog Millionaire was going to go directly to DVD. I would have loved to have been in the room when that decision was made. (“Slumdog Millionaire” won eight Oscars, including for Best Picture.)

You can imagine what he would think of all the brilliant people who know so much about sports or investing.

ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

BARRY RITHOLTZ, HOST: This week on the podcast, I have a very interesting and not quite as controversial as his reputation makes out. Ryan Holiday is the author of really a very fascinating book about the entire Hulk Hogan, Peter Thiel, Gawker litigation called “Conspiracy.” He has really a fascinating amazing background. I wish I had another hour because I had so many more questions.

I’m a big fan of Robert Green. He was a research assistant for him who wrote the books on power laws. I didn’t get a chance to talk about that. But we really delved into what’s going on with the media, the whole problem with digital marketing, blogging, all of the sort of click-happy social media, the filter bubbles that have been created by Facebook, and Google, and Twitter.

It really is an interesting question. He has quite an amazing story, drops out of school, very young, eventually gets a gig in American Apparel. I think he’s 20 when he becomes their Head of P.R., and here it is barely a decade and changed later, and he’s five books or six books published. Some of which have become extremely successful bestsellers. Just really an unusual interesting fascinating history for a writer, I found the conversation quite intriguing, and I think you will also.

So with no further ado, my conversation with Ryan Holiday.

I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio. My special guest today is Ryan Holiday. He is an American author, marketer and entrepreneur. He is the former Director of P.R. for American Apparel. He is a media strategist and columnist and the former Editor at Large for the New York Observer. At the young age of barely 30, he is the author of multiple books, including “Trust Me, I’m Lying,” “The Obstacle is the Way,” “Ego is the Enemy,” “Growth Hacker Marketing,” “The Daily Stoic,” and his most recent book is “Conspiracy: Peter Thiel, Hulk Hogan, Gawker, and the Anatomy of Intrigue.”

Ryan Holiday, welcome to Bloomberg.

RYAN HOLIDAY, AUTHOR, MARKETER, ENTREPRENEUR: Thank you for having me.

RITHOLTZ: So, we kind of threw this together pretty quickly. As soon as I saw the book was published, I’ve been fascinated by this entire tawdry episode. The new book is a inside look at the Gawker trial, which we learned was backed by Peter Thiel. This is so different than everything else you’ve written. What attracted you to this — this subject matter?

HOLIDAY: I have the same reaction to the story. I mean, it — it feels like it’s something that should have happened in the 19th century. It’s what a — it’s what Vanderbilt or Rockefeller or Carnegie would have done to an enemy. The idea of this billionaire having this personal grudge for good reasons or bad reasons against the media outlet, and then plotting secretly in the shadows to — to destroy them sounds epic.

In fact, it’s not even the 19th century, it’s Shakespeare or Plutarch —

RITHOLTZ: Right.

HOLIDAY: — or something.

RITHOLTZ: The Spanish-American War, yellow journalism, all that sort of behind-the-scenes manipulation.

HOLIDAY: Yeah.

RITHOLTZ: The — the most fascinating thing is you had written a couple of columns on Gawker and Thiel for the Observer.

HOLIDAY: Yeah.

RITHOLTZ: After this whole thing goes down, both Nick Denton —

HOLIDAY: Yeah.

RITHOLTZ: — the founder of Gawker and Peter Thiel separately unaware of the other reach out to you to tell their side of the story. What — what was that like?

HOLIDAY: It — it was surreal. I mean, there was one night at the end of 2016 where I had dinner at Peter Thiel’s house, and then the next night I had — I went to an event at — at Denton’s house. And I — it struck me that I was probably the only person speaking to these two mortal enemies, these two people who had spent north of $20 million fighting each other, that embarrassed each other in the press.

Nick — Nick had only recently moved back into his apartment having had to rent it out on Airbnb to cover the mortgage during his bankruptcy when all his assets had been frozen. And so —

RITHOLTZ: And to bring everybody up to speed, Thiel wins the giant case or I should say Hulk Hogan in — in the guise of his real-life persona —

RITHOLTZ: — and forces Nick Denton, the founder and — and sole owner or majority owner of — of Gawker —

HOLIDAY: Yeah.

RITHOLTZ: — into personal bankruptcy. So these aren’t people just having a — a Twitter battle —

HOLIDAY: Right.

RITHOLTZ: — these are really people at each other’s throats.

HOLIDAY: No, I mean, this is an epic conflict. It begins in 2007 when at — at Nick’s prompting Gawker out, Thiel is gay. He — he —

RITHOLTZ: So back up a sec. So, Gawker Properties owns Valleywag —

HOLIDAY: Yes.

RITHOLTZ: — which was the —

HOLIDAY: They’re sort of.

RITHOLTZ: — tally version of a gossip. So —

HOLIDAY: Yeah.

RITHOLTZ: — Gawker started it sort of like a — a Page Six with no limitations, a high hitting, hard —

HOLIDAY: Yeah.

RITHOLTZ: — hitting —

HOLIDAY: And the way that you would need to be a celebrity to be on — to be on TMZ or Page Six, Gawker said, “Anyone doing something tawdry or provocative or unusual or — that has a secret of some kind is a potential sort of subject for one of our stories.” And so —

RITHOLTZ: So — so 2007, what was the title of the post that had come out in Valleywag.

HOLIDAY: It was “Peter Thiel is totally gay, people.” And I think that in — one — there’s an early Gawker memo that said every post should have a glint of meanness, nastiness, right.

RITHOLTZ: Yeah, I read that.

HOLIDAY: And I think that —

RITHOLTZ: I read that in your book.

HOLIDAY: — that — that headline perfectly encapsulates that it’s — it’s not just that you’re taking a — a relatively private figure, someone who is certainly a well-known investor but just because you’re an investor doesn’t mean people —

RITHOLTZ: Right.

HOLIDAY: — get to know who you have sex with or not.

RITHOLTZ: Right.

HOLIDAY: And — and —

RITHOLTZ: But it wasn’t — by the way, let me interrupt you here. Wasn’t it the worst kept secret in the world? I mean, it wasn’t that he was closeted. People knew, in fact, the author of that post was gay and he said half of San Francisco knew Peter Thiel was gay.

HOLIDAY: Yeah, that — that — that’s what they claimed. I think Peter would say, you know, my parents knew, my close colleagues knew, the people I went to college would knew perhaps, but that doesn’t mean that it should be broadcast to an audience of potentially millions of people. Do you know what I mean?

RITHOLTZ: Is — isn’t that sort of an odd distinction — because if someone outs someone who’s closeted, that’s a terrible violation. Anybody who is gay should feel free to out themselves at a time of their own choosing, but what I find fascinating is this epic battle —

HOLIDAY: Yeah.

RITHOLTZ: — is started by not even taking something that was private making public, but taking something that was known but not publicized and saying, “We’re going to take this and spread it around a little bit, and put a little Gawker stink on it.”

HOLIDAY: Well, let’s say that you and your wife have an open marriage. Obviously, some people would know by definition of it being open.